Investors Heartened by Reported Progress on Fiscal Cliff Talks

December 18, 2012

Share prices rose overnight by 1.0% in Japan, 0.6% in India, 0.5% in Australia, 0.3% in New Zealand and Thailand, 0.2% in Taiwan and the Philippines, and 0.1% in China. In Europe, equities have advanced 0.7% in Madrid, 0.4% in Frankfurt and Milan, and 0.3% in London, but the Paris Cac is off 0.1%.

Not much change has occurred in the dollar. The yen and sterling haven’t moved at all. The buck is down 0.1% against the euro, yuan and Swiss franc but up 0.1% against the loonie, 0.2% versus the Australian dollar and 0.4% relative to the kiwi.

Gold is likewise unchanged at $1698.80 per ounce, while oil prices have firmed 0.6% to $87.72 per barrel.

Ten-year sovereign debt yields have risen three, two and one basis points in Britain, Japan, and Germany.

In fiscal cliff discussions, House Speaker Boehner has conceded a rise in tax rates on the rich, and President Obama has modified his offer to show equal concessions on revenues and spending.

On the central bank watch,

The Reserve Bank of India failed to cut its 4.25% cash reserve requirement as analysts were expecting. The 8.0% repo rate and 7.0% reverse repo rate were left unchanged as well. Reserve requirements had been cut at the prior meeting in late October, and government officials were encouraging the central bank leaders to ease additionally at this last scheduled meeting in 2012.

The Swedish Riksbank reduced its repo rate to 1.0% from 1.25% as expected. Earlier reductions of a similar amount were implemented in December 2011, February 2012, and September 6, 2012. On rate guidance, Bank officials do not anticipate a rate change next year.

Minutes from the Reserve Bank of Australia’s December 4th Board meeting indicate that the decision to cut the Official Cash Rate to 3.0% from 3.25% followed a pro-and-con decision that also considered waiting-and-seeing before undertaking such a move.

Central bank decisions are expected also today from Turkey and Hungary. Rate cuts are believed plausible in each of these instances.

British CPI inflation held steady at 2.7% last month instead of dipping by a tenth of a percentage point as forecast. Core inflation remained at 2.6%. Retail price inflation slipped to 3.0% from 3.2% in October, while the RPIX index also eased by 0.2 percentage points to 2.9%. Britain’s producer output index dipped 0.2% on month, reversing October’s increase, and fell to a lower-than-expected 12-month increase of 2.2%. Core PPI-O remained at 1.4%. Producer input prices posted an on-year 0.3% dip after showing no change in the year to October.

The British ONS house price index, formerly known as the DCLG home price gauge, was 1.5% higher than a year earlier in October, down from a 1.7% 12-month increase in September.

The auction of Spanish 3-month and 6-month sovereign debtwent well, producing a further significant decline in yields. Remarks by ECB President Draghi about the bank supervision agreement were upbeat.

Italy’s current account deficit narrowed sharply to EUR 245 million in October from EUR 2.58 billion in September.

Producer price inflation in Portugal eased to 3.8% in November from 4.6% in October, thanks to a monthly 0.6% drop. Irish PPI inflation slowed to 2.7% from 2.9% in October. Ireland also reported GDP and current account figures for 3Q12. GDP growth slowed to 0.2% on quarter and 0.8% on year, while the current account surplus narrowed 6% to EUR 3.05 billion.

Japanese department store sales swung to an on-year increase in November of 2.2% from a drop of 2.4% in October. Tokyo sales were 3.1% greater than in November 2011.

The 12-month drop in Chinese house prices decreased from 1.1% in October to 0.7% last month, and fewer cities reported any drop. Chinese foreign direct investment posted on-year declines of 5.4% in November and 3.6% over the first 11 months of 2012. Hong Kong’s 3.4% jobless rate in November was the same as in October.

Australia’s index of leading economic indicators edged 0.2% higher in November, while the index of coincident indicators moved 0.1% higher according to the Australian Conference Board.

The U.S. current account deficit in 3Q gets reported today. Other scheduled U.S. data releases are weekly chain store sales and the National Association of Home Builders index. The main focus of investor interest in these waning December days remains the fiscal talks between Boehner and Obama.

Currency Thoughts has evolved from a blog to a full-functioning website. This new design provides easier access to your favorite features and new capabilities to accept ads. In the future, it will be possible to register to accept emailed updates.